Washington, Sept. 18 (Bloomberg)
-- Trading skyrocketed in options that bet on a drop in UAL Corp. and AMR
Corp. stock in the days before terrorists crashed hijacked United and American
airlines jets into the World Trade Center and the Pentagon.

Morgan Stanley Dean Witter &
Co., which occupied 22 floors of the 110-story 2 World Trade Center, and
Merrill Lynch & Co., with headquarters near the destroyed twin towers,
also experienced pre- attack trading of 12 times to more than 25 times
the usual volume in so-called put options that profit when stock prices
fall, according to Bloomberg data.

Now, securities regulators in the
U.S., Germany, Japan and Hong Kong say they are investigating whether terrorists
raised money from insider trading on their knowledge of attacks that devastated
New York's financial district and closed U.S. stock markets for four days.

``They not only set out to destroy
capitalism, but also to beat us at our own game,'' said Duke University
law professor James Cox. ``These are people who hate capitalism and see
that you can turn capitalism against itself.''

Some airline, insurance, and brokerage
stocks had jumps in the days before the Sept. 11 attack in so-called put
options, which profit when a company's shares fall.

One day before two American Airlines
jets were hijacked and crashed, for example, 1,535 contracts changed hands
on options that let investors profit if AMR stock falls below $30 per share
before Oct. 20. That was almost five times the total number of those October
$30 put options traded before Sept. 10, according to Bloomberg data. AMR
shares fell $11.70 today to $18.

`Terrorist Involvement'

Those 1,535 contracts were worth
$1.6 million at today's closing price compared with $337,700 at the end
of trading on Sept. 10, according to Bloomberg data. A contract represents
options for 100 shares.

Similarly, October $30 put options
for UAL soared, with 2,000 contracts traded on Sept. 6, three trading days
before the attack. A total of 27 contracts had traded previously. UAL shares
fell $13.32 today to $17.50. The 2,000 contracts were valued at $2.4 million
today, compared with $180,000 on Sept. 6.

``We've heard those reports about
terrorist involvement in our markets,'' U.S. Securities and Exchange Commission
Chairman Harvey Pitt said in a statement. ``Our enforcement division has
been looking into a variety of market actions that could be linked to these
terrible acts including the subjects of the rumors.''

Trading records may help show whether
Osama bin Laden or other terrorists were behind suspicious trading in airline,
brokerage, and insurance stocks or options, and may help securities regulators
trace a money trail to some of those responsible for the attacks at the
World Trade Center.

Evidence of Murder Plans

``It's a matter of great interest
to intelligence. To the extent we find this evidence, we shouldn't just
focus on it as proof of insider trading but as evidence of a desire to
commit murder and terrorism,'' said Columbia University law professor John
Coffee.

Deutsche Boerse AG spokesman Frank
Hartmann said that exchange and German regulators also are examining trading
in stocks, options, and futures before the Sept. 11 attack. On Sept. 6
and Sept. 7, trading almost doubled the average for the past six months
in shares of Munich Re, the biggest reinsurer. Initial spot checks had
found nothing irregular, Hartmann said.

A spokeswoman for the Chicago Board
Options Exchange declined comment.

``There is no evidence of the reported
involvement of Hong Kong in any money-harboring activity related to Osama
bin Laden,'' said Jasmin Fung, spokeswoman for the Hong Kong Monetary Authority.
``However, banks in Hong Kong need to be aware of the issue.''

`Sophisticated Strategists'

The prospect of insider trading based
on knowledge of the attacks suggests a good deal of sophistication on the
part of far- flung terrorist networks, which may have used U.S. markets
to raise money for more assaults.

``It sure presents these people on
a whole different level as sophisticated strategists rather than religious
zealots,'' Coffee said. ``I suppose from their standpoint ... they're trying
to pay for future terrorist activities by profiting from their past terrorist
activities.''

At Morgan Stanley, trading in October
$45 put options jumped to 2,157 contracts between Sept. 6 and Sept. 10,
almost 27 times a previous daily average of 27 contracts. Options to sell
Merrill Lynch shares for $45 apiece before Sept. 22 had 12,215 contracts
traded from Sept. 5 to Sept. 10, 12 times the earlier daily average of
252. Morgan Stanley shares fell $6.40 today to $42.50. Merrill Lynch shares
fell $5.37 to $41.48.

Other brokerage and insurance
companies where options trading surged include:

-- Citigroup Inc., which has estimated
that its Travelers insurance unit may pay $500 million in claims from the
World Trade Center attack. It had a jump in trading of October options
that profit if shares fall below $40 apiece. Almost 14,000 of those options
contracts were traded from Sept. 6 to Sept. 10 -- about 45 times the previous
daily average. Citigroup shares fell $2.85 today to $39.60.

-- Marsh & McLennan Cos., the
biggest insurance brokerage, which had 1,700 employees working in the World
Trade Center. Traders on Sept. 10 exchanged 1,209 contracts on options
that profit if company shares fall below $90 through the third week of
September. Previously, 13 contracts had traded on an average day. Marsh
& McLennan shares fell $2.50 today to $84.50.